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Roth still hot on Zenyatta (V.ZEN), despite soaring stock price
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Zenyatta Ventures Ltd. ( TSX: V.ZEN, Stock Forum) has emerged as one of the hottest stocks on the TSX Ventue Exchange after seeing its share price soar to $5 late last week from a low of 14.5 cents last year.
The $261.5 million market cap, based on 55 million shares outstanding, has been achieved even though Zenyatta has attracted very little attention from the Canadian investment community.
The company has yet to complete a 43-101 compliant resource estimate for its flagship Albany graphite project west of James Bay in northern Ontario, which would ensure that disclosure related to the project has been prepared under the supervision of a qualified person.
As well, Zenyatta has not provided commercial samples from the Albany project for product verification.
Those two factors alone would seem to make the company a risky bet for investors, especially ones who got in at prices close to the $5 level.
However, that did not deter Roth Capital Partners LLc of Newport Beach, Ca., from slapping a buy recommendation on Zenyatta, with a $4 target back on April 26, 2013 when the stock was trading at $1.97. Roth Capital analyst Matt Koranda, said the buy rating remains in place even though the stock is trading well above the $4 target.
Graphite is an industrial mineral that is normally associated with steel production, lead pencils and golf clubs. Back in early 2012, a number of key factors combined to put graphite on investor radar screens.
They include export restrictions in China and speculation that an already growing market will be spurred on by demand from new applications, including lithium-ion batteries, fuel cells and nuclear reactors.
However, industry officials say some projects became overly promoted, making graphite stocks a tough sell in more recent months.
However, Roth argues that Zenyatta’s Albany project has geological features that make it rare in the industry.
“The Albany project is a vein-type (hydrothermal) graphite deposit, which is a very rare and pure form of naturally occurring graphite that accounts for less than 1% of global production,” the investment firm said in its report.
The only mines producing from deposits of this type are located in Sri Lanka.
“We believe Zen’s high-purity hydrothermal graphite will likely compete directly in the synthetic market – at a much lower cost structure,’’ the report said.
Normally, natural graphite and synthetic graphite supply different end markets since their purity levels and crystalline structures differ.
However, Roth said it believes Zenyatta’s high-purity hydrothermal graphite is one of the only natural sources that will be able to compete directly with higher cost synthetic graphite.
Synthetic graphite demand is driven by carbon electrodes, light-weighting, and cleantech applications.
Zenyatta’s Albany project is located in a remote area of northern Ontario, meaning that access is gained by float plane, helicopter and all-terrain vehicle.
“Overburden is very thick in places with little or no outcrop exposure,’’ the company said in a report.
The company has said its main priority for this year is to continue drilling using the remainder of a $3.5 million budget.
The goal is to expand on a 2012 drilling campaign that intersected a large mineralized zone of graphitic breccias and veining, which yielded up to 6.6% carbon over 170 metres from widely spaced drill holes, the company said.
A company source said Zenyatta has not needed to do a financing because it was able to raise $6.7 million from outstanding in-the-money warrants.
Once a NI-43-101-compliant resource estimate is produced, the company will need about $30 million for a preliminary economic analysis and feasibility study, Roth said in its research report. Another $170 million will be required for construction of a mine, the report said.
“To fund a portion of these capex requirements, we assume Zenyatta raises $50 million in equity,” Roth added.
In the footnotes of its report, Roth Capital Partners said it expects to receive or intends to seek compensation for investment banking or other business relationships with "the covered companies" mentioned in the report in the next three months.
Read more at http://www.stockhouse.com/news/natural-resources/2013/07/29/roth-still-hot-on-zenyatta-(t-zen),-despite-soarin#eKkcjpoh5MCpiuZq.99 |
